Puerto Rico To Test Newly Minted Junk Status With Bond Sale

By Michael Aneiro

On the same day that Fitch became the last of the three big rating agencies to cut Puerto Rico’s credit rating to junk, Puerto Rico outlined plans to sell new general obligation bonds in the near future. Here’s Puerto Rico’s announcement of the sale:

The Government Development Bank for Puerto Rico today announced that the Commonwealth of Puerto Rico expects to issue General Obligation (GO) bonds in the near term to refinance certain outstanding obligations and address the government’s liquidity needs.

GDB Chairman David H. Chafey said: “We have completed significant measures in the past month to improve our fiscal health and are ready to access the market with a new issuance of GO bonds.”

In order to fully address questions arising from rating agencies and other recent developments, the Commonwealth’s previously announced quarterly webcast has been rescheduled for February 18, 2014, at 2PM EST. The webcast will provide additional detailsabout the Commonwealth’s financing plan.

Barclays, RBC Capital Markets and Morgan Stanley have been selected as joint lead managers for the upcoming GO bond issuance, with Barclays acting as lead left book-running manager.

Both Moody’s and S&P cited Puerto Rico’s limited liquidity and questionable access to capital markets in downgrading Puerto Rico last week. In its downgrade today, Fitch cited the deleterious effects of the S&P and Moody’s downgrades on Puerto Rico’s ability to get new financing, saying “recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the commonwealth’s debt going forward.”

A junk credit rating would seemingly make for higher borrowing costs for Puerto Rico, although market participants have been quick to point out that Puerto Rico bonds had already been trading at junk yields for several months before the downgrades, meaning the market had already effectively regarded Puerto Rico debt as junk even if the rating agencies didn’t yet.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.